Archive for the ‘Stocks’ Category

S&P 500 Daily Price Change Frequency Distribution

Monday, January 29th, 2018

People are getting nervous about this late stage Bull market, so when the market opened down this morning and the S&P 500 reached negative 0.5%, I got a worried call about how significant that would be.

First, in and itself, as an isolated day price change, it really doesn’t have any particular significance, but in response I put together this frequency distribution of daily Close-to-Close price changes for the S&P 500 since January 2, 1964 (the beginning of my daily data); and also for the MSCI Emerging Markets stocks index from February 7, 1996 (and for the S&P 500 for the same period for comparison with emerging markets).

The short answer was that price change throughout the day for the S&P 500 has been between approximately the 20th and 30th percentile, based on 54 years of history (and between the same for 27 years of history).

The emerging markets, however, experienced larger drop varying between the 13th and 8th percentile; possibly showing greater sensitivity to the increase in US 10-year Treasury rates, or reaction to the currency management talk at Davos.

Here is the distribution in 5 percentile increments for the S&P 500 index and the MSCI Emerging Markets index, which you may find useful for future reference:

Related Securities: SPY, VOO, IVV, VFINX, EEM, VWO

Top 10 US Stocks Per Sector Ranked For Price vs 1-Year High

Sunday, December 27th, 2015

These tables present the 10 stocks in each US sector of the total US stock market ranked by how close they are to their 1-year trailing high price as of December 24, 2015.  To be included in the filter universe, each stock had to have a 3-month average Dollar trading volume of at least $10,000 per minute.

This is not a recommendation to buy or sell any of these stocks.  It is merely a snapshot of where we are at essentially year-end 2015.

2015-12-27_21-TopSectorStocks5 2015-12-27_21-TopSectorStocks4 2015-12-27_21-TopSectorStocks3 2015-12-27_21-TopSectorStocks2 2015-12-27_21-TopSectorStocks1

Dividend Growth Stocks for a Low Price Return Stock Market

Friday, December 18th, 2015
  • ACE, ADP, Microsoft and Raytheon look to us to be attractive long-term dividend growth investments; and they have been so in the long-term and short-term past
  • High quality, low leverage stocks with long histories of persistent dividend payment and growth are important in the low forward price return US stock market expected for the next few years
  • Free cash flow is to be prized in stock selection when thinking about weathering storms
  • Stocks that have paid and increased dividends though multiple recessions could help investors sleep on those investments

Most analysts agree that total return for US stocks over the next few years will be modest.  When expected price returns are high, dividend yield takes a back seat for many investors (not necessarily conservative or retired investors), because of their low contribution to total return.  When expected price returns are modest or low (as they are now), dividends get up in the front seat, and maybe even the driver’s seat.

It seems to us that at least for a good part of a portfolio for retirees and near-term pre-retirees, dividends should be in the front seat.  That is not necessarily something for younger investors with at least, say, 10 years before retirement; and who are still in the earning and asset accumulation stage of their financial lives.

So this investment note is probably more suitable for the retiree or near-term retiree crowd (or any other investor who for whatever reason is attracted to dividend stocks).  And this note is not about reaching for yield.  It is about finding high quality, steady dividend growth companies, that have weathered the test of time; and up and down markets.

We always begin our search for opportunity with a quantitative filter.  We think you really have to do that, unless you rely in tips on TV, radio or investment media — something that will not expose you to the full range of possibly good ideas. And, more importantly, such tips will seldom give you much depth — but you can research them to see if they work for you if that is your cup of tea.

I suppose you could say this article also a tip, but we think its different.  It is different, in great part, because we take you through the steps of how we got to our conclusion, so you have the basis to make your own evaluation, and to determine what additional research you need to do for your self if any of the ideas here seem potentially attractive.

There are thousands of ways to set up a filter with different criteria categories and different parameters within the categories; and we use several different filters to generate ideas.  This is just one filter, not the only filter than makes sense to us.

There are over 8,000 listed securities on the NYSE, NASDAQ and AMEX.  Nobody can review them all, so a filter reduces the size of the universe to examine.  Our preliminary quantitative filter yesterday reduced 8,000+ securities to a list of 15.   Here is how we go those 15.


  • Dividend Growth Consistency: Paid and increased dividends for at least 8 years (through 2008-2009 market crash)
  • Dividend Growth Rate: minimum 3% annualized over 1, 3, and 5 years
  • Current Yield: >= 2%
  • Trailing Payout Ratio:  less than 100% (except for REITs or MLPs)
  • Debt-to-Equity: maximum 2
  • PEG Ratio: > 0 and < 3
  • 8-Year Price Change: better than zero (traverses last recession)
  • 1-Year Price Change:  better than negative 5%
  • Liquidity: 3-month average per minute trading volume is at least $10,000
  • Quality Rating: by at least one of Value Line, Standard & Poor’s, MSCI or Wright Investors’ Services
  • Consensus 12-mo Target Price/Market Price: >=1


This table lists the 15 filter survivors, along with their sector and industry.

(click image to enlarge)


We are concerned these days about free cash flow, that could be helpful if there is margin compression due to a sales slump, increased interest costs, or some other adverse development.  Because of that concern, we visually examined free cash flow charts for the 15 filter survivors and found 6 stocks with a nice enough year-by-year pattern and enough total free cash flow to give us some comfort.  Their charts are shown below, also presenting their price, their revenue and their dividend.


Of the 15 filter survivors, 6 look best after reviewing charts of free cash flow.

Declining revenue at LEG is unattractive.  Declining revenue at RTN is much less concerning, because it was based on defense sequester, which will end; and most importantly RTN’s critical role in weapons systems for the war with ISIS.

2015-12-17_ ACE 2015-12-17_ ADP 2015-12-17_ LEG 2015-12-17_ MSFT 2015-12-17_ RTN 2015-12-17_ SJM

Also because of concerns about a tepid global economy, we would currently favor quality stocks more than usual as an extra level of comfort in the event that things go poorly in the markets.  This table shows the quality ratings for the 6 stocks remaining in our filter.



A synopsis of how the firms describe their rating goes like this:

  • S&P Capital IQ Earnings & Dividend Rank: Growth and stability of earnings and dividends
  • Value Line Financial Strength Rating: balance sheet leverage, business risk, the level and direction of profits, cash flow, earned returns, cash, corporate size, stock price, cash on hand, and net of debt
  • MSCI Quality Index: Durable business models with sustainable competitive advantage; high ROE, stable earnings with low business cycle correlation, and  strong balance sheets with low leverage.
  • Wright Investors’ Service Quality Rating: (1) Liquidity, (2) Financial Strength, (3) Profitability & Stability, and (4) Growth. The ratings are based on 32 factors (8 for each of the four rating elements) using 5-6 years of corporate records and other investment data. The highest possible score is AAA20.  The lowest possible score excluding certain designations for insufficient information or time frame, is CCC0.  They consider the minimum rating for “quality” to be BBB4.

By these ratings, MSFT is clearly best and SJM is probably worst.

The Street (mostly Sell-Side firms) publish their 1-year forward price targets.  The graphics that follow present the composite Street view of each of the 6 stocks.


Looking at the analyst estimates, LEG looks least attractive.  ADP looks most attractive to the Street consensus

2015-12-17_Consensus_ACE 2015-12-17_Consensus_ADP 2015-12-17_Consensus_LEG 2015-12-17_Consensus_MSFT 2015-12-17_Consensus_RTN 2015-12-17_Consensus_SJM



Two leading independent analytics services are Standard and Poor’s Capital IQ and Value Line.  They approach the matter of rating differently.  S&P is more qualitative and Value Line is more quantitative.  They sometimes agree and often do not.  An example here is on ADP where they are as far apart as they can possibly be, with S&P saying stay away and Value Line saying jump on board.

Fidelity publishes the view of a variety of mostly independent analysts, and then Reuters uses a proprietary weighting system to come up with a single score from 0-10 called StarMine.  They weight the analyst opinions based on the historical accuracy of each analyst firm for the sector in which the stock they are rating belongs.

S&P Capital IQ uses a 1-5 rating system, where 5 is best and 1 is worst (Stars are for year ahead return, and Fair Value is market price versus the S&P view of fair value).  Value line uses a rating system from 1-5, where 1 is best and 5 is worst (their Earnings Predictability is a relative measure of the reliability of earnings forecasts).

Here is how each service rated each of our 6 selections.

By these three services, LEG looks better than in the Street consensus and ADP looks worst, based on S&P giving ADP an outright Sell  and a most overvalued price versus Fair Value.  ACE is clearly on top according to these sources.




Nothing beats reading the full SEC filings, and studying the full set of financial statements and footnotes.  That said a summary look at selected financial data can focus attention on a stock or divert attention elsewhere.

The first table presents absolute Dollar amounts (in $millions) for selected financial data.  The second table presents the same data on a common size basis (each data point expressed as a percentage of sales).



MSFT has the best EBITDA margin, but apparently pays more tax, because it has the same net income ratio as ACE and ADP which have lower EBITDA margins.  The all have good Current Ratios (MSFT the best).  SJM has a negative tangible equity, because its intangibles exceed its book equity.


LEG is the weakest in overall growth rates.

ACE seems to be the most consistent average to above average performer, and may benefit most by rising interest rates.

MSFT has been weak on EPS growth, but strong on sales and dividend growth.  They have the resources to keep the dividends coming, and their negative EPS has been significantly impacted by write-downs of discontinued businesses, which may not be as problematic going forward.

RTN has poor historical revenue growth, but restocking and development of the US high-tech weaponry arsenal is likely, and they would be a direct beneficiary.

SJM has had earnings growth problems (as has LEG), but has kept dividends growing nicely, and they have some product lines with strong brand equity that should carry them forward (e.g. Smuckers jellies and jams, Jiff peanut butter, Pillsbury, Folgers coffee, Kibbles n’Bits and 9Lives cat food)


A really important point for us at this juncture in this time of expected low price returns and high importance of dividend return (and for the needs or our mostly near retirement and retired clients), is the persistence and growth of dividends through difficult times.

Each stock in this list of 6 has paid and increased dividends for at least 11 years (RTN) and as long as 44 years (LEG).  To put those long periods into more functional perspective, we looked up all of the recessions in the last 44 years and counted how many recessions each stock lived through while paying and increasing their dividend.

The more recessions they weathered, the more likely they are, we think, to weather the next one.  If a retiree can count on the dividend, even if the stock price is gyrating (particularly if the retiree can live on the income from the portfolio alone), the more the retiree can sleep at night, and be less concerned about the price of the stock in short periods of a year or two.

LEG persisted with dividend growth through 7 recessions — pretty impressive.  ADP persisted through 6 recessions — also pretty impressive.

Just because a stock persisted through fewer recessions is not necessarily a ding on performance, because they may not have existed at all of those times.  MSFT is an example of that.

Lastly for growth, we engaged in an entirely hypothetical calculation just to possibly provide some scope of future dividend payback of the original purchase price.  These calculations should not be relied upon, just reflected upon.

We projected the 7 years historical dividend growth rate forward 7 years; then the 5-year history out 5 years; then the 3-year history out 3 years to see how much of the purchase price might be recovered before a possible sale of the stock at the end of those periods.

Then we projected out 5 years again using the average of the 7, 5 and 3 year dividend growth rates; and once more using only the minimum growth rate among the 7, 5 and 3 years rates.

By those calculations MSFT looks best and SJM works, and none are bad.


Most of you probably have a reasonable idea what most of the 6 stock do, but here are business descriptions to paint a possibly fuller picture of each company’s business.

ACE: ACE Limited is a holding company. The Company is a global insurance and reinsurance company. The Company offers commercial insurance products and service offerings, such as risk management programs, loss control and engineering and complex claims management. It provides specialized insurance products to niche areas, such as aviation and energy. It also offers personal lines insurance coverage, including homeowners, automobile, valuables, umbrella liability and recreational marine products. In addition, it supplies personal accident, supplemental health and life insurance to individuals in select countries. The Company’s segments include Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance and Life.

ADP: Automatic Data Processing, Inc. (ADP) is a provider of human capital management (HCM) solutions and business process outsourcing. The Company operates through two segments: Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled HCM solutions. These offerings include payroll services, benefits administration, recruiting and talent management, human resources management, insurance services, retirement services and payment and compliance solutions. The Company’s PEO business, ADP TotalSource, offers small and mid-sized businesses human resources (HR) outsourcing solution through a co-employment model. ADP TotalSource includes HR management and employee benefits functions, including HR administration, employee benefits and employer liability management, into a single-source solution, including HR administration, employee benefits and employer liability management.

LEG: Leggett & Platt, Incorporated is a manufacturer that conceives, designs and produces a range of engineered components and products found in homes, offices, automobiles and commercial aircraft. The Company operates in four segments: Residential Furnishings segment, which manufactures steel coiled bedsprings; Commercial Fixturing & Components segment, which include work furniture group that designs, manufactures, and distributes a range of engineered components and products primarily for the office seating market; Industrial Materials segment consists of wire group, which operates a steel rod mill and tubing group, which supplies welded steel tubing and Specialized Products segment designs, manufactures and sells products, including automotive seating components, specialized machinery and equipment, and service van interiors. Its brands include Semi-Flex, ComfortCore, Mira-Coil, Lura-Flex, Superlastic, Super Sagless, Tack & Jump, Schukra, Gribetz, Masterack and Hanes, among others.

MSFT: Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. The Company’s products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also offers cloud-based solutions that provide customers with software, services and content over the Internet by way of shared computing resources located in centralized data centers. It provides consulting and product and solution support services.

RTN: Raytheon Company, together with its subsidiaries, is a technology Company that specializes in defense and other Government markets. The Company develops products, services and solutions in markets: sensing; effects; command, control, communications and intelligence (C3I); and mission support, as well as cyber and information security. The Company operates in four segments: Integrated Defense Systems (IDS); Intelligence, Information and Services; Missile Systems, and Space and Airborne Systems. The Company serves both domestic and international customers, as both a prime contractor and subcontractor on a portfolio of defense and related programs primarily for Government customers. The Company’s products include Global Integrated Sensors, Integrated Air & Missile Defense, Cybersecurity and Special Missions, Global Training Solutions, Land Warfare Systems, Advanced Missile Systems, Tactical Airborne Systems, Advanced Missile Systems and Electronic Warfare Systems.

SJM: The J. M. Smucker Company is a manufacturer and marketer of consumer food and beverage products and pet food and pet snacks in North America. The Company has four segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International, Foodservice and Natural Foods. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. The Company’s International, Foodservice and Natural Foods segment represents sales outside of the U.S. retail market segments. The Company’s principal consumer food and beverage products are coffee, peanut butter, fruit spreads, shortening and oils, baking mixes and ready-to-spread frostings, canned milk, flour and baking ingredients, juices and beverages, frozen sandwiches, toppings, syrups, pickles, condiments, grain products and nut mix products. The Company’s pet products consist of dry and wet dog food, dry and wet cat food, dog snacks and cat snacks.


We own ACE, ADP and RTN; are thinking about MSFT, which we have owned in the past.

  • ACE as an insurance company will probably benefit by interest rates as they rise
  • ADP will benefit by an improving jobs picture, and ever more complex benefits and HR issues
  • RTN will benefit by the increasing reliance of high-tech warfare, and the current war with ISIS
  • MSFT is coming back with its Windows 10 system, its own computer brand, and cloud platform (and a new and better CEO)

This note was written on Wednesday December 16, 2015.  The following charts were generated at end-of-day Friday December 18, 2015.


These chars plot the dividend adjusted percentage performance of each of the 6 stocks versus an S&P 500 ETF (in black).

10 Years Monthly



3 Years Weekly




3 Months Daily



Best 3 Health Care Active Mutual Funds and Their 12 Top Consensus Stock Holdings

Saturday, August 9th, 2014

Except for one gas utility fund (GASFX), only Health Care mutual funds outperformed the S&P 500 over multiple long and short periods (including 2008) with “reasonable” volatility for return generated.

As we inspected those Health Care funds, we identified 3 that had the most attractive overall set of performance attributes.  They are:

  • (FSPHX) Fidelity Select Health Care
  • (JAGFLX) Janus Global Life Sciences
  • (PRHSX) T. Rowe Price Health Sciences

The top 12 individual stocks held by all three of those mutual funds are (with relative weights) as of last  available report:

  • (GILD) Gilead Sciences [17.90%]
  • (ACT) Actavis [14.60%]
  • (BIIB) Biogen [13.90%]
  • (CELG) Celgene [9.71%]
  • (ABBV) AbbVie [9.08%]
  • (ALXN) Alexion Pharmaceuticals [8.45%]
  • (VRTX) Vertex Pharmaceuticals [4.61%]
  • (TEVA) Teva Pharmaceutical Indust. [6.08%]
  • (VRX) Valeant Pharmaceuticals Intl [4.61%]
  • (HCA) HCA Holdings [3.72%]
  • (JAZZ) Jazz Pharmaceuticals [3.24%]
  • (HTWR) Heartware International [2.29%]

[Important Note:  This article is provided as an information aid to do-it-yourself investors.  This IS NOT a specific recommendation to buy or sell any security, nor a statement of suitability for any particular investor.]


Here is how the mutual funds have done versus the S&P 500 (SPY) , the S&P 500 Health Care sector (XLV), and the Biotech sub-sector (IBB):









 10-Year Comparative Accumulated Portfolio

The red line is based on owning the 3 mutual funds in equal weight and rebalanced monthly (no tax effect, so represents tax exempt or tax deferred account).  The blue area plot represents the S&P 500.  We did not provide dollar figures here simply to show the visual proportions.

The Health Care funds outperformed during the 2008 crash as well as over the full 10-year period. That does not mean they will necessarily outperform in a future bear market.  The world is different now than then, the Affordable Care Act not the least of the differences.  However, we are encouraged by historical relative performance.


40-Quarter Performance Spread

This histogram presents the quarterly performance of the 3 funds in equal weight versus less the performance of the S&P 500.


3-yr,  5-yr and 10-yr Sharpe Ratio:

The 3 funds held in an equal weight portfolio had a significantly better Sharpe Ratio over 3, 5 and 10 years — less volatility per unit of return.


Valuation and Operating Statistics

The 3 funds have higher P/E,  P/B,  P/S and P/CF valuations than the S&P 500 benchmark (but with higher growth rates, not shown).

The funds have lower net margin, lower ROE and ROA than the benchmark, due in part to the development stage of some of the biotech holdings.




The 12 top stocks held by each of the three funds substantially outperformed the S&P 500 as well as the 3 mutual funds over the past 10 years.

We must point out that those 12 stocks were not the top 12 consensus stocks throughout the 10 year period that the mutual funds were measured.  These stocks are a current snapshot of the funds’ holdings. There have been very recent developments, such as the Gilead Hep-C drug approval, which may not have had analogs in the past and may not have analogs in the future.

Here is how the individual stocks  have done versus  the S&P 500 Health Care sector (XLV), and the Biotech sub-sector (IBB):


10-Year Comparative Accumulated Portfolio

If the 12 stocks had been purchased 10 years ago and held in equal weight and rebalanced monthly in an account with tax deferral or tax exemption (such as an IRA, pension or foundation), this chart shows how the accumulated value of the stocks (red line) compares to the S&P 500 (blue area plot).  We did not provide dollar figures here simply to show the visual proportions.

They did much better relative to the S&P 500 than the mutual funds (noting that these stocks probably were not the top 12 consensus stocks 10 years ago).


40-Quarter Performance Spread vs. S&P 500


3-yr,  5-yr and 10-yr Sharpe Ratio:

The top 12 consensus stocks help in equal weight produced a higher Sharpe Ratio than the 3 mutual funds held in equal weight — experienced less volatility per unit of return than the mutual funds.


Valuation and Operating Statistics

The 12 stocks have higher valuation ratios than the funds, and lower net margin, but somewhat better ROE and ROA.



Valuation Metrics for the Individual Stocks:



These charts present the Revenue, EBITDA and Dividend payments over the past 10 years for each of the individual top 12 consensus stocks:


Investment Quality Ratings By Wright’s:

Wright’s rates each stock by four key attributes: Investor Acceptance, Financial Strength, Profitability and Growth (using 8 criteria for each of the four attributes).  Investment Grade is defined as a rating of BBB4 or better. (see explanation of rating levels)

  • (GILD) Gilead Sciences [ABA15]
  • (ACT) Actavis [ABC6]
  • (BIIB) Biogen [AAA16]
  • (ABBV) AbbVie [ABA19]
  • (ALXN) Alexion Pharmaceuticals [AAA20]
  • (VRTX) Vertex Pharmaceuticals [ABNN]
  • (TEVA) Teva Pharmaceutical Indust. [ABB5]
  • (VRX) Valeant Pharmaceuticals Intl [ADNN]
  • (HCA) HCA Holdings [ALNN]
  • (JAZZ) Jazz Pharmaceuticals [ABC20]
  • (HTWR) Heartware International [LBNN]

Links to Yahoo key statistic data, Morningstar key ratios, BarChart short-term technical rating, and StockCharts price chart with some averages and technical indicators and the StockCharts Technical Rank for each of the 12 stocks are available here:

  • (GILD) Gilead Sciences || Y, M, B, S ||
  • (ACT) Actavis || Y, M, B, S ||
  • (BIIB) Biogen || Y, M, B, S ||
  • (ABBV) AbbVie || Y, Mo, B, S ||
  • (ALXN) Alexion Pharmaceuticals || Y, M, B, S ||
  • (VRTX) Vertex Pharmaceuticals || Y, M, B, S ||
  • (TEVA) Teva Pharmaceutical Indust. || Y, M, B, S ||
  • (VRX) Valeant Pharmaceuticals Intl || Y, M, B, S ||
  • (HCA) HCA Holdings || Y, M, B, S ||
  • (JAZZ) Jazz Pharmaceuticals || Y, M, B, S ||
  • (HTWR) Heartware International || Y, M, B, S ||

For those who want health care exposure, don’t need strong dividend income,  don’t want to research and monitor individual stocks positions, and want active management; the three identified mutual funds are an interesting choice.

For those who want health care exposure,  don’t need strong dividend income, and prefer to invest in individual stocks; some of the top 12 consensus stocks may be an interesting choice.




16 Stocks That Outperform Market Fundamentally With Lower Beta

Wednesday, November 20th, 2013

Investors are increasingly worried about lack of revenue growth in the US stock market, and investors are always seeking earnings growth.  In this time period, where questions of “topping” are more frequent, investors may be seeking lower volatility stocks, just in case things go badly — and retired investors who may be selling shares to generate household operating funds are well advised to keep portfolio volatility low.

With those thoughts in mind, we asked which companies had higher revenue growth rates (“RGR”) and higher earnings growth rates (“EGR”) than the market, but also lower Beta than the market, and also better GARP (growth at a reasonable price) attributes indicated by the PEG ratio.  We used the criteria in this table and found 30 stocks that passed the filter.


However, wanting some comfort from the careful consideration of recognized independent analysts, we reduced the list further to include only those that were rated by S&P Capital IQ and Thomson Reuters StarMine, and did not receive a rating from either below the level of Neutral. We also required that S&P Capital IQ have opined on Fair Value and did not indicate the stock was overvalued.

That knocked the list down to 16 stocks, shown in this table along with the primary filter criteria from the table above (stocks listed in alpha order by symbol).


Stocks with links to the fundamentals and valuation page at Yahoo Finance [with the EV/EBITDA in brackets]:

This table provides the yield and 5-year dividend growth rate, worst 3 months total return, and 3-year percent standard deviation (from Principia as of Oct 31).

(click image to enlarge)


These charts plot the dividend adjusted price of each of the 16 stocks divided by the same for the S&P 500 index ETF (SPY).






Some Financial Strength Comments:  

We looked at the companies in terms of financial strength through S&P Capital IQ, Value Line and Wright’s.  They were generally in agreement that all of the companies were above average strength to one degree or the other, but had conflicting views on AutoZone, Cooper and Lorillard.

  • For AutoZone Wright’s said the strength was “Limited”, Value Line said “B” which is below average, and S&P said “B+” which is average.  Moody’s credit rating is “Baa2”.
  • For Cooper Companies Wright’s and Value Line said financial strength is “A”, but S&P said below average at “B”.  Moody’s credit rating is “Ba2”.
  • For Lorillard Wright’s said the financial strength is “D” (Fair), while Value Line said “A” and S&P Capital said “A+”.  Moodys says “Baa2”.

Conflicting Year Ahead Ratings:

We cross checked the S&P Capital IQ and Thompson Reuters StarMine ratings with Timeliness ratings from Value Line.  All three were devoid of negative ratings, except for Taiwan SemiConductor, which Value Line rated 4 on their 5 point scale (where 1 is best).

Position Disclosure:

We have positions in CVS, QCOM and UNP from the list above.





Slim Pickin’s Screening For Growth and Value Among Dividend Growth Stocks

Tuesday, November 19th, 2013

Dividend and dividend growth are great, and for many investors obligatory, but lack of revenue and earnings growth is a problem. A dividend portfolio needs fundamental growth at the top and bottom line.  Without that dividends cannot be relied upon for long.

There are slim pickn’s these days, which also lends some weight to those saying the market is more than fully valued, and due for a correction.  Only 3/10 of 1% of our stock universe made it through basic filters for historical revenue, earnings and dividend growth, and current yield and forward valuation filters.  That doesn’t seem like enough to us for a market that is only “fairly valued”.

Let’s see how filtering can give clues to overall market valuation, and what comes out in a prospect list for detailed consideration.

There are many other factors to consider in stock selection, but a general filter for growth is a good place to start. With that in mind, let’s look at growth sector-by-sector. Even if you do not buy individual stocks and prefer ETFs; and even if you do not seek dividends, comparing growth by sector, may be helpful to you in focusing your attention on particular sectors where growth is more prevalent.

Using the database available at Fidelity today, there are 4,558 stocks price of at least $5.00 per share and which are available on the New York Stock Exchange or NASDAQ.

There are only 1,351 companies (29.6%) with at least 3% revenue growth over 5, 3 and 1 years (1,948 with at least 3% growth over 5 and 3 years, but not 1 year; and 2,116 with at least 3% growth over 5 years, but not 3 or 1 years.

Of the 4,558 NYSE/NASDAQ stocks trading at $5.00 or more, 778 (17.1%) had EPS growth of 3% or more over 5, 3 and 1 years (1,368 with at least 3% growth over 5 and 3 years, but not 1 year; and 1,909 with at least 3% earnings growth over 5 years, but not 3 or 1 years).

[Note: as we go through the stats that the totals vary slightly, because the database we used is constantly being updated during the day – as a result the number of stocks passing filters vary somewhat between screens during a review session.]

Let’s look at growth by sector – first examining revenue, then earnings.

Sector-by-sector, the percentage and number of companies with at least 3% revenue growth rate over 5, 3 and 1 years are:

  • (48.5%) information technology 300 of 619
  • (44.7%) healthcare 182 of 407
  • (43.4%) consumer staples 69 of 159
  • (39.3%) energy 123 of 313
  • (37.4%) consumer discretionary 198 of 529
  • (33.4%) industrials 161 of 482
  • (29.4%) telecommunications 20 of 68
  • (24.1%) financials 225 of 937
  • (23.7%) materials 49 of 207
  • (18.1%) utilities 20 of 111

Sector-by-sectors for EPS growth, the percentage and number of companies with at least 3% EPS growth over 5, 3 and 1 years are:

  • (29.6%) consumer staples 47 of 159
  • (29.1%) consumer discretionary 154 of 529
  • (24.3%) utilities 27 of 111
  • (21.8% information technology 135 of 619
  • (21.8%) industrials 105 of 482
  • (18.4%) healthcare 75 of 407
  • (17.0%) financials 159 of 937
  • (15.5%) materials 32 of 207
  • (11.5%) energy 36 of 313
  • (10.3%) telecommunications 7 of 68

Ideally, one would look for companies with both revenue and earnings growth meeting minimums. With both the revenue and earnings minimums combined, the population of companies for more individual review reduces to only 436 in total or 7.8% of the universe of 4,558:

  • (22.0%) consumer staples 35 of 159
  • (17.2%) consumer discretionary 91 of 529
  • (13.5%) healthcare 55 of 407
  • (13.2%) information technology 82 of 619
  • (13.1%) industrials 63 of 482
  • ( 8.3%) energy 26 of 313
  • ( 8.2%) materials 17 of 207
  • ( 6.3%) utilities 7 of 111
  • ( 6.2%) financials 58 of 937
  • ( 2.9%) telecommunications 2 of 68

Of course, as conservative investors overseeing accounts in or near the retirement withdrawal stage, we would prefer some yield, to divide our total return opportunity and risk between cash in hand and capital appreciation.

By requiring our selections to have a yield of at least 2% (a tad more than the S&P 500), that population of 436 companies that had both revenue and earnings growth of at least 3% for 5, 3 and 1 year reduces to 71 companies (1.6% of the universe).

By also wanting our dividend stocks to have some payment history and some growth in dividends as well as growth in revenue and earnings, we added a 3% five-year dividend growth requirement. That reduced the population to 41 stocks (0.9% of the universe).

Not wanting to invest in any stocks that recently cut its dividend, we also required that the current year-over-year dividend payment show no decrease. That did not eliminate any stocks.

Lastly, we think that general growth at a reasonable price argument makes good sense, so we add a PEG element to the screen limiting the PEG range 0x to 2x (where the zero eliminates negative forward looking earnings estimates). That reduced the list to 13 stocks (0.3% of the universe).

  • (GPC) Genuine Parts
  • (TUP) Tuperware
  • (LO) Lorillard
  • (ARLP) Alliance Resource Partners
  • (MMP) Magellan Midstream Partners
  • (BLK) Blackrock
  • (CPSI) Computer Programs and Systems
  • (CHRW) C.H. Robinson Worldwide
  • (CPA) Copa Holdings
  • (DE) Deere
  • (HCSG) Healthcare Services Group
  • (TAL) Tal International
  • (MSFT) Microsoft

The sector representation is:

  • (1.04%) industrials 5 of 482
  • (0.64%) energy 2 of 313
  • (0.63%) consumer staples 1 of 159
  • (0.38%) consumer discretionary 2 of 529
  • (0.25%) healthcare 1 of 407
  • (0.16%) information technology 1 of 619
  • (0.11%) financials 1 of 937
  • (0.00%) materials 0 of 207
  • (0.00%) utilities 0 of 111
  • (0.00%) telecommunications 0 of 68

These low percentages add weight to the argument that the market is more than fully valued. It would seem that a higher percentage of stocks in each sector should be available with revenue, earnings and dividend growth at least a market level of yield, and a PEG ratio of 2 or less – but that is not the case today. This along with other work we do in our monthly newsletter Rational Risk Equity Income Investor, suggests slim pickin’s these days, and that is a gray cloud over the market in our view.

With that lucky “13” number (3/10 of 1% of the 4,558 stock universe), we’ll leave the rest to you to see if any other of the filter survivors are attractive and suitable for you due to these and other factors.

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For those in the withdrawal stage of their financial lives who are also selling shares in addition to collecting dividends (or for those who may be on margin and need more stable prices on those shares on which the margin is based), and perhaps for those fearing a correction in stock prices; paying attention to Beta makes sense.

Beta  the reactivity of the stock to price changes in the S&P 500 — a value above 1.00 shows that historically when the S&P 500 moved X%, the stock moved more; and a value below 1.00 means it moved less.

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There are many factors not considered in this article that you should evaluate, from this reduced research list.

To the extent that you are interested in the view of independent analyst firms, we point out that neither S&P Capital IQ nor Value Line had any below neutral opinions as to year ahead performance for any of the 13 stocks; and the aggregate opinions of  two Thompson Reuters services “StarMine” and “I/B/E/S” also have no below neutral ratings for any of those stocks.

On Fair Value, S&P Capital IQ rated DE, ARLP, MSFT and CHRW as undervalued; and CPSI, HCSG, GPC and MMP as overvalued.

Value Line rated DE, MSFT and LO as 1 or 2 (favorably)  for Timeliness, and ARLP, MMP and GPC as 4 or 5 (unfavorably) for Technical Condition.

This tabular data based on Thompson Reuters data manipulated with in-house formulas via the Metastock tool shows some important technical condition aspects of the 13 stocks.

Description of Column Headings: The first column to the right of the company name is the ratio of the market price to the 200-day moving average (greater than 1.00 is preferred). The next column is the ratio of the 200-day average divided by the average 10 days ago (to give a view of the direction of the “leading tip” of the average — greater than 1.00 means “up”).  The next column indicates whether the slope of the 252-day linear regression trend line is up or down (1 = up and 0 = down). The next column is the ratio of the 50-day average to the 200-day average (greater than 1.00 is preferred). The next column is the Relative Strength Index (more than 70 is overbought, and under 30 is oversold). The next column titled “Z-score 200” is the number of standard deviations the price is from the 200-day average (0.00 means the price is at the 200-day average — the larger the absolute value of the Z-score, the higher the probability the price will move back toward the moving average). The last column, labeled “Price Channel Position 63” shows where the price is located in the 63-day price range from its high to its low (because the range is defined on the prior day, it is possible for the current price to be above 100 or below 0 — a larger number is closer to the high and a lower number is closer to the low).


This table shows the price rate of change (not total return – just price) over several time periods (5, 21, 63 and 252 days, which is 1 week, 1 month, 1 quarter and 1 year).


We own BLK, TUP, GPC as of this writing.